Multiemployer Plans Struggle with Growing Unfunded Liabilities

Increased employer contributions are still insufficient to cover growing unfunded liabilities.

There was an aggregate increase in employer contributions across the multiemployer pension plan (MEPP) system of 31% from 2009-2013, according to research by the Society of Actuaries (SOA).

However, the unfunded liabilities of MEPPs continued to increase. By 2013, total unfunded liabilities reached a total of $115 billion to $500 billion, depending on which funding calculation method is used.

Contributions to the system for the years analyzed (2009 through 2013 and partial year data from 2014, based on Department of Labor filings as of January 5, 2016) significantly exceeded legally defined minimum required contribution (MRC) calculations. For example, for 2009, aggregate contributions were 8.75 times the aggregate MRC, and contributions for 94% of plans exceeded their MRCs. By 2013, aggregate contributions were twice the aggregate MRC.

However, according to the SOA, while contributions significantly exceeded MRCs, in many cases, plans with significant unfunded liabilities had low or no minimum required contributions due to large credit balances from previous years.

NEXT: Factors contributing to unfunded liabilities

There are several factors that contributed to the MEPP system’s unfunded liabilities, according to the SOA.

The system’s aggregate contributions increased on average 6.9% per year, significantly outpacing the average inflation rate of 2.1% per year. However, contributions for a large percentage of plans were insufficient to prevent their unfunded liabilities from growing, let alone to close their funding gaps.

Contributions were insufficient to keep unfunded liabilities from growing for most plans—75% of plans saw unfunded liabilities grow when liabilities are measured using Treasury Department rates.

Decreasing numbers of active participants compounds the funding pressures as the number of active participants fell roughly 2% per year. Because MEPP contribution rates are typically negotiated for several years in advance as a function of active participants, decreasing numbers of active participants may mean that contributions actually received toward the end of the negotiated period may be significantly less than anticipated during negotiations.

“The good news is MEPP funding levels appear more positive for 2014, plus many plans expect increased contributions in future years,” says Lisa Schilling, a retirement research actuary at the SOA. “Early indications for 2014, based on roughly 60% of plans reporting by January 2016 are show improving trends.”

The SOA will be releasing a portion of this analysis—the MEPP Contribution Index—later this month, and will update the Index annually for release every January.